Warren Buffett’s investment philosophy has stood the test of time, but it has not remained static. While he has always adhered to the principles of value investing, his approach has evolved over the decades. The Buffett of today does not invest in the same way he did when he first started. His strategy has shifted from deep value investing, which focused on buying stocks at steep discounts, to investing in high-quality businesses with strong competitive advantages, even at fair prices.
This evolution was largely influenced by Charlie Munger, his long-time business partner, who encouraged him to focus on the quality of the business rather than just its price. As a result, Buffett moved away from buying merely ‘cheap’ stocks and instead sought companies that could generate strong and sustainable earnings for decades.
Buffett’s adaptability has allowed Berkshire Hathaway to grow from a failing textile company into a massive conglomerate with holdings in insurance, consumer goods, technology and energy. By studying how his investment philosophy has changed over the years, investors can gain valuable insights into how to refine their own investment strategies while staying true to fundamental principles.
EARLY YEARS: THE BENJAMIN GRAHAM INFLUENCE
Deep value investing and strict focus on undervalued stocks
In his early years, Buffett was heavily influenced by Benjamin Graham, the father of value investing. While studying under Graham at Columbia Business School, Buffett adopted a strict approach to investing, focusing on buying stocks that were trading far below their intrinsic value. His goal was to find companies so undervalued that they were essentially ‘cigar butts’ – discarded businesses that still had one last profitable puff left.
Graham’s philosophy, outlined in The Intelligent Investor, emphasised buying stocks based on tangible assets and book value rather than focusing on long-term business potential. Buffett followed this method religiously in his early years, searching for stocks that were trading below their liquidation value, with little regard for their future earnings power.
One of Buffett’s most notable early investments using this approach was GEICO, a company he discovered while working for Graham’s firm. Unlike a traditional deep-value play, GEICO had strong business fundamentals and Buffett recognised its potential. This investment planted the seed for his later shift toward buying high-quality businesses with durable advantages rather than just cheap stocks.
The impact of The Intelligent Investor on Buffett’s thinking
Buffett has repeatedly credited The Intelligent Investor as the most important book on investing he has ever read. The book reinforced his belief in:
- Investing with a margin of safety – buying businesses at a discount to their intrinsic value.
- Avoiding speculation and making investment decisions based on fundamentals rather than market sentiment.
- Viewing stocks as ownership in real businesses rather than mere trading instruments.
While this strict value approach helped Buffett achieve success in his early years, it had limitations. Many of the ‘cheap’ companies he bought had no real future growth prospects, which meant he had to keep reinvesting profits into new undervalued opportunities rather than allowing his investments to compound over time.
This realisation, coupled with Charlie Munger’s influence, led Buffett to gradually shift his strategy from buying undervalued businesses to buying high-quality businesses with long-term competitive advantages.
SHIFT TO QUALITY BUSINESSES
Charlie Munger’s influence in emphasising high-quality companies over deep-value plays
Munger’s influence on Buffett’s investment philosophy was arguably the biggest turning point in his career. Munger convinced Buffett that instead of buying "fair companies at wonderful prices," he should focus on buying "wonderful companies at fair prices".
This shift was profound. Instead of looking for the cheapest stocks based on book value, Buffett began searching for companies with strong brands, dominant market positions, high return on equity and the ability to compound earnings over decades.
One of the first major investments that reflected this new thinking was See’s Candies, which Berkshire Hathaway acquired in 1972. Unlike Buffett’s past investments, See’s Candies was not deeply undervalued in terms of book value, but it had something more important – a strong brand, pricing power and a loyal customer base. This investment was a revelation for Buffett.
See’s Candies taught him that a business with durable competitive advantages can be far more valuable than one that is simply cheap. It also showed him that companies with pricing power can consistently generate high returns on invested capital, even if their tangible assets appear small on a balance sheet.
Buying businesses with durable competitive advantages rather than just cheap stocks
From this point on, Buffett began prioritising businesses with sustainable competitive advantages (economic moats). He sought companies with:
- Strong brand loyalty (Coca-Cola, Apple, American Express).
- Consistent earnings and high return on capital (Moody’s, Visa, Mastercard).
- Pricing power – companies that can raise prices without losing customers (See’s Candies, McDonald's).
This shift marked Buffett’s transition from a Graham-style deep-value investor to a Munger-influenced quality investor. However, he still applied Graham’s core principle of buying at a discount to intrinsic value – he just redefined what intrinsic value meant.
MODERN BUFFETT: LARGE-SCALE INVESTMENTS IN BLUE-CHIP STOCKS
Investments in Apple, Coca-Cola and other established businesses
By the 1990s and 2000s, Buffett had fully embraced his evolved investment philosophy. Instead of looking for obscure, undervalued small-cap stocks, he focused on established, blue-chip businesses with strong competitive advantages.
One of his most famous investments reflecting this approach was Coca-Cola, which he started buying in 1988. Buffett recognised the company’s brand power, global reach and pricing ability and despite its stock not being ‘cheap’ in traditional value investing terms, he saw its long-term earnings potential. Today, Coca-Cola remains one of Berkshire Hathaway’s largest holdings.
Another major example is Apple, which Buffett began investing in around 2016. Despite being historically sceptical of technology stocks, Buffett saw Apple not as a tech company but as a consumer goods company with an incredibly strong brand and customer loyalty. This investment has since become Berkshire’s single largest holding, proving that Buffett’s willingness to adapt has contributed to his continued success.
Willingness to invest in technology and new industries
For most of his career, Buffett avoided technology stocks, believing them to be too unpredictable. However, his investment in Apple signalled a shift – he recognised that some tech companies, particularly those with strong brand loyalty and recurring revenue streams, could fit within his investment framework.
Although he still largely avoids highly speculative tech stocks, Buffett has shown a greater openness to companies that generate stable cash flows and have long-term competitive advantages in the digital economy.
KEY TAKEAWAYS FOR INVESTORS
Adapting to market changes while staying true to core principles
Buffett’s evolution shows that investors must be willing to adapt to changing market conditions while staying grounded in core principles. He never abandoned the principles of value investing – he refined them to include a greater emphasis on quality, durability and long-term growth potential.
Why Buffett’s investment style continues to evolve
Buffett’s willingness to learn, adjust and adopt new strategies has been key to his longevity and success. His transition from deep-value investing to quality investing allowed Berkshire Hathaway to scale and his more recent investments in technology reflect his continued ability to evolve.
For investors, the biggest lesson is this: Investing is not about rigidly sticking to one strategy forever – it’s about constantly refining your approach while staying disciplined and focusing on long-term value creation.
This Trustnet Learn article was written with assistance from artificial intelligence (AI). For more information, please visit our AI Statement.